Electricity company's plight<\/p>\n
However one analyzes its financial condition, state
\nelectricity company PLN is without a doubt broke. With current
\nassets of only Rp 9.7 trillion (US$1.02 billion) as of September
\n(latest data available) and Rp 77.3 trillion in debts, of which
\nRp 47.3 trillion were short-term liabilities, including Rp 21.5
\ntrillion maturing last month, the state utility company is
\ntechnically bankrupt. Yet the government and the House of
\nRepresentatives remain embroiled in protracted debates about ways
\nof resolving the company's huge debts.<\/p>\n
More damaging was a recent threat by chief economics minister
\nRizal Ramli to let PLN go bust, pointing out that the huge debt
\nproblem was of the company's own making. Rizal said state
\ncompanies would never learn a lesson if the government intervened
\nto bail them out every time they defaulted on their debts.<\/p>\n
PLN, like most other state companies in the country, is
\ncertainly not a model of a well-managed enterprise. It is
\nnotorious for its gross inefficiency and for often exorbitantly
\nmarking up project costs. It also has its own share of corruption
\nand collusive practices, as discovered through a special audit by
\nArthur Andersen two years ago.<\/p>\n
It would be nonetheless unfair to place all the blame squarely
\non the PLN management, notably the current one which was
\nappointed less than a year ago. As the audit also found, PLN,
\nlike most other major state companies, had been used as a cash
\ncow by former president Soeharto's family members and cronies.
\nGovernment intervention inflated the costs of its procurement
\ncontracts. Still more devastating, the company had been forced to
\ndo business with dozens of private power generating companies
\nowned by politically well-connected investors under contracts
\nwhich were aimed at only benefiting the investors.<\/p>\n
It was these politically directed dealings which were
\nprimarily responsible for PLN's inefficiency. But the plunge of
\nthe rupiah against the U.S. dollar in late 1997 was the last
\nstraw. As the company's borrowings have mostly been in dollars
\nand 60 percent of its production costs are based on foreign
\ncurrencies, its debts have exploded to their current level. What
\nmakes the problem even more complex is that PLN cannot set its
\nrates on the basis of market forces because they are set by the
\ngovernment.<\/p>\n
Therefore, prolonging the debate on who should be responsible
\nfor resolving the PLN debt would be playing a game of
\nbrinkmanship.<\/p>\n
Further delay in resolving the PLN debt through either
\nrescheduling or debt-equity conversion arrangements could
\neventually lead the country into a serious electricity crisis.
\nThe government should be well aware that the systemic risks of a
\nmassive power failure are equally devastating as those of bank
\nfailure. But while the government has spent more than $65 billion
\nin taxpayers' money to bail out the banking industry, the
\nelectricity sector has been left in a perilous situation.<\/p>\n
Even now the seeds of a major crisis are being sown as PLN is
\nno longer capable of doing standard maintenance work, let alone
\nmaking new investments to improve or expand transmission and
\ndistribution networks. As its creditworthiness has fallen way
\nbelow standard it no longer has access to new commercial credit
\nlines or the capital market.<\/p>\n
It is needless to reiterate how vital electricity is to the
\npeople, the economy. As the progress achieved over the past 30
\nyears has made the economy and the people, even those in most
\nrural areas, more dependent on power, one cannot imagine the
\nsocial chaos and disruption of economic activities that would be
\ncaused in the event of a major power blackout.<\/p>\n
Potential new investors are also watching how the government
\nsolves the PLN debt problem. They may continue to shun the
\ncountry even after the current political uncertainty ends if the
\nproblem of the electricity monopoly is not settled once and for
\nall. PLN has warned that if construction of new power plants is
\nnot started this year, the country may encounter a severe
\nelectricity shortage in 2003.<\/p>\n
Therefore, while negotiations with independent power producers
\nshould be sped up to review their lopsided power sales contracts
\nwith PLN, it is most urgent for the government and the House to
\nmake a final decision on resolving PLN's huge debts.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/electricity-companys-plight-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}